R&D Subsidiary of Western MNEs in China: Internal Knowledge Sharing Impacts on the Subsidiary Mandate Evolution

China is transforming into a leading global player within innovation. As this transformation happens, many Western multinational enterprises’ (MNEs) are making strategic adjustments in their research and development (R&D) units in China. These adjustments, among other things, include new roles and increased global integration. While increasing locally created technological innovations and strengthening intellectual property rights have played an important role in this, the existing literature is inconclusive on what has triggered the subsidiary mandate change in China and how Western MNEs can utilize the location to its advantage. Addressing the knowledge gap in the current research, this thesis provides insight into how knowledge sharing in Western R&D subsidiaries in China is a key antecedent for subsidiary mandate evolution.This thesis carried out a systematic literature review that identified four central themes. Through this review, an integrated conceptual framework for Western R&D subsidiary mandate evolution in China was created. Together, the central themes and conceptual framework provide the theoretical foundations that inform the research design and methodological considerations.The study integrates multiple sources of research collected during two four-month research stays at two leading Western MNEs R&D subsidiaries in China: a Danish knowledge-intensive company with a competence-creating mandate and a German knowledge-based company with a competence-exploiting mandate. Using a unique insider perspective within the subsidiaries, 75 semi-structured interviews were conducted among manager-level and employee-level R&D staff.The interviews explored three different categories within each company’s subsidiary mandate. The first focus was on MNE integration. This was analyzed by exploring knowledge sharing challenges between headquarters and the subsidiary. The second focus of the study was on the individual-level variables influencing the companies. This was investigated by analyzing personal characteristics in relation to knowledge sharing challenges. The final focus was on informal embeddedness. This was investigated by exploring how R&D staff members used their external social network ties. The findings demonstrate that intangible factors such as headquarters’ commitment, mistrust, lack of China-specific knowledge, and an under-appreciation of cultural differences reduce the effectiveness of intra-MNE knowledge sharing. This is especially evident in the competence-exploiting mandate case. Personal characteristics of R&D staff members were also found to play a significant role in the competence-exploiting mandate case when compared to the competence-creating mandate case. Finally, the staff from the Western R&D subsidiaries with a competence-creating mandate were found to place more emphasis on internalizing their external social networks in comparison to staff from the Western R&D subsidiaries with a competence-exploiting mandate.Through this in-depth investigation of knowledge sharing as a key antecedent for subsidiary mandate evolution, the study has contributed to several literature streams, including literature on microfoundations, resource dependence theory, and subsidiary management in emerging market contexts. Furthermore, the study offers practitioners a number of reference points to aid in successfully navigation of the complex process of subsidiary evolution in China.